Posited: That if your product can be sold online and you’re doing business in China, you need an e-commerce channel. Or two.

Some very smart people I’ve been talking to in Beijing believe that the best marketing in China is built with e-commerce rather than advertising at its core. Naturally, this does not apply as easily to some companies/products as it does to others.

But I keep this mantra close at hand because it reminds me that I spend too much time seeing marketing as one “P” (promotion) and not four (product, price, promotion, and place.) It also reminds me* that the only marketing that matters is the marketing that either sells more product or makes it possible to sell more product.

* I know, we’re marching through no-brainer country, but these things are easy to forget when you spend sixty to ninety hours a week with your head in “promotion” mode.

Someone asked me the other day why I thought Alibaba was such a huge winner in the China e-Commerce game. I see three reasons.

Trust. For a long time, people in China were wary of e-commerce in China because they were simply afraid of getting ripped off when buying goods sight unseen. We didn’t really face that issue in the US to the same extent, because Sears, Wards, and JC Penney had been selling goods to Americans sight-unseen for over a century. Over that time, we had not only discovered which mail-order brands we could trust to “deliver the goods,” we also compelled the creation of terms, conditions, and practices that formed an (often unspoken) contract between retailer and buyer. When it created Taobao, Alibaba put together a series of terms and conditions that allowed both early adopters and the mass market to trust them enough to send their money into the ether. That trust went deep enough that, with Alipay, Chinese now trust Alibaba with their money.

Experience. Alibaba understood from the outset that it needed to offer a an efficient and enjoyble buying experience, but that it did not need to go crazy. The company understood that it had a low bar. The Chinese retail experience was always miserable, and has improved only a little over the past two decades. Simply by making the experience a bit better than what you get at a typical Chinese retail store, and spending the rest of their effort on reliability and trust, Alibaba won.

Scope. As Jeff Bezos understood, the key to winning in electronic commerce was not to focus on being the best bookstore, or grocery store, or anything store. The key was becoming the go-to place to shop, regardless of what you want to buy. Alibaba used Taobao to build unmatchable scope in a very short period of time. Now the default choices are traditional retail and Taobao, and everyone else has to fight harder for consideration, even as a specialized niche site.

It is difficult to see how anyone might knock that wall down.

Still, Alibaba faces two challenges. First, it has to figure out how it can continue to sustain high growth once it has secured its role of China’s national online department store. That market does not continue growing at double-digits forever, and Alibaba is already hunting for how to grab the next large chunk of users’ wallets – or extend its strengths abroad.

The second challenge is that as e-commerce matures, more companies will figure out how to build their own retail empires, much like Xiaomi – and, to a lesser extent, Apple – has done. Once Taobao and TMall have accustomed people to buying big brand merchandise online, the value for brands of building their own sites begins to grow. Alibaba will be challenged to address the defection danger in the coming 2-3 years.

For now, though, Alibaba sits pretty, all based on an unimpeded view and unmatched understanding of the Chinese consumer.

It’s the picture of Italian ice-cream in a shop of Rome, Italy (Photo credit: Wikipedia)

The lobby of my hotel in Beijing had a happy hour ice cream special: a scoop of Movenpick ice cream for RMB 25 ($4). Intrigued, my family ordered a few scoops.

I ordered Cappucino, and watched the server mark from the bin clearly marked as such. It was with great surprise, then that when I put the first dainty taste of ice cream into my mouth I tasted not the expected creamy espresso, but the cloying super-sweetness of butterscotch.

The staff could not figure out the problem, but to someone who has managed companies in China, the issue seems as clear as day: somebody got it mixed up in the kitchen, and figured “hey, what the hell, who is going to notice?”

Coming out of a long winter and into the pre-summer months (I daren’t call it “Spring,”), the season offers constant reminders to those of us living on the North China Plain* that China is far from solving its most serious air pollution problems. There are those, however, who live far outside of the Ring Roads who believe that things are a lot better and continue to improve.

Any reduction in coal use comes off of a very high base. China burned over 4.2 billion metric tons of coal last year, enough for two tons of coal for every living man, woman, and child in China, PLUS enough for three tons each for every man, woman, and child in the United States. While any reduction in the overall number is a good thing, China has a very long way to go.

Greenpeace is using government data to support its narrative. Leave aside any general reservations about the Chinese government as a source of data: in this case alone, the government has an abiding interest in telling its people a positive story, and thus in massaging or falsifying the data. Greenpeace’s defense of the government statistics – that that the government gains nothing by revealing a drop in industrial output – is at worst inadequate and at best debatable, especially as the other side of those figures is the shift to the service sector. Further, I’d argue that the government is actually under quite heavy pressure to be seen to be doing something about pollution, and that it has much to gain by gaming the figures on coal use. When the source of your data has both motive and opportunity to play fast and loose with the truth, it behooves one to seek less intrinsically biased sources. †

Similarly, there is no transparency as to methodology in collecting and analyzing these statistics, so we have no way of knowing if this came from a change in the way use is measured. Changing the way the game is scored is not an uncommon hammer in the Chinese statistics toolkit.

There is no way to confirm or gainsay these statistics because there is no credible, disinterested third party with access to the information on which these statistics are based, or that can provide data from other sources against which to balance the conclusions.

Even if we take these statistics as correct, there is little clarity as to what forces are driving the decline in coal use, so we are uncertain what caused them, and whether that cause is a one-off occurrence, a short-term phenomenon, or the harbinger of a genuine trend. If we do not look at wide range of factors, we cannot tell whether this was caused by uncommonly warm weather, a fall in the price of other energy sources, or a temporary decline in the economy caused by the shift from a manufacturing-based economy to a services-based one.

If this is not sufficiently convincing that China’s coal use statistics may be unreliable, at about the same time the Greenpeace report, New York Times correspondent Chris Buckley published a damning report of revised Chinese government figures that raised estimates of Chinese coal use every year since 2000 by as much as 17%. The culprit: “gaps in data collection, especially from small companies and factories.”

We often criticize the Chinese government for getting statistics wrong. Playing fast and loose with critical measurements is wrong, but we expect no less from a political system for whom the truth is whatever serves the nation’s rulers. Greenpeace, however, does not get a pas.

Perhaps the organization just wanted to turn out a report on China, was pressed for time, and threw this together. I can only hope this is the case, because there is another, less flattering explanation: that Greenpeace did this in order to curry favor with the Chinese government, to show that it could go along to get along. If this is the case, it would not only be inexcusable, it would also represent a betrayal of the organizations mission, a betrayal of its stakeholders, and an abdication from its role as an environmental watchdog.

*- Or even those of us who USED to live there, return frequently, and have family there.

† Greenpeace itself has no lack of detractors who question the organization’s data on other issues. Whether those criticisms are valid or not is moot: by using a questionable source of data in a high-profile research paper without even flagging the potential problems, Greenpeace opens its methodologies and conclusions on a range of issues to re-examination.

The reason the “One Belt, One Road” initiative is going to be so interesting to watch carefully is that its outcome will be a litmus test for governance in China.

More than just a simple question of whether the initiative makes economic sense, the results will determine the degree to which such centrally-planned and -driven initiatives are either workable or relevant in modern China.

Rhetoric about strongmen aside, this is not the era of Mao. China is a larger, more complex, and more decentralized country than it was forty years ago, or even in 1999 when Jiang Zemin launched his “Go West” initiative. If the nation faces challenges with OBOR, it does not follow that the strategy is wrong: what it points to, more likely, is how the role of government in these initiatives must be to instigate and enable rather than to plan and oversee.

That thinking would represent a huge deviation from the Party’s modus operandi, but as Huang Yasheng is fond of reminding us, the greatest leaps in China’s post-Liberation economic progress have occurred when the government sets the tone, and then gets out of the way. Combining such an approach with vigilance over safety, graft, corruption, and the environment will likely emerge as the way forward for the government’s role in development.

Catching up on reading over the weekend, I came across a report Goldman Sachs published in March about China’s “new consumer class.” (“The Rise of China’s New Consumer Class.”) The title is a bit deceptive: the researchers at Goldman note correctly that there is not a single class of consumer, but several. They’re partly right.

The problem with the Goldman report is that it focuses on income as a primary differentiator. While income has some practical value as a predictor of consumer behavior in China (poor peasants are unlikely to be potential buyers for Rolexes or megayachts,) that value is limited because incomes are not as closely tied to buying power as they are in other economies, and for two immediate reasons.

First, as one friend of mine noted on Twitter, incomes are notoriously hard to pin down in China. Reporting is spotty, and even the Chinese government lacks the wherewithal to really understand an individual’s income. What is more, there is a vast population of individuals who nominally make very modest incomes (government officials, leaders of state-owned enterprises, senior military officers), but whose actual buying power far exceeds their incomes. Add a third group – those who supplement their incomes via transfers from relatives overseas – and you can see how any company that targets its consumers by nominal income is going to miss a massive chunk of their addressable market.

Second, China’s consumers tend to consume based less on their income than on their desire for face and fulfillment. Purchases of automobiles (which are 12 to 14 times more expensive in China than in the US based on income and price differences), high-end mobile phones, and houses are far out of line with the incomes of those buying them. Parents and even grandparents will often kick in their own savings to help a young man make a downpayment on a house; newly-graduated urban workers will spend up to three months of their income on a mobile phone or a laptop; and the more entrepreneurial will take up a side business off the books or even engage in illicit activity to allow them to have the things they desire.

Classifying China’s consumers by income is, at best, an economics exercise. Classifying them by their values and priorities is far more relevant to businesses, and is a far better indicator of the degree to which you have a market – or not – in China.

Leftover students – concept – that group of high school graduates in China who aspire to higher education – and who appear to have the ability to complete a degree – but who are denied that education and the attendant social mobility by China’s limited university seats and the caprice of the gaokao.

Leta Hong Fincher has done an incredible job framing and documenting the phenomenon of “leftover women” in China, explaining the roots of the phenomenon and the challenges facing women who have, for all the best of reasons, passed what serves as a marriageable age, or who have careers that make finding a suitable spouse all but impossible. If you have not picked up her book, by all means do so. As you would expect, the work does more than simply describe a unique demographic: it also offers an insight into an underlying dynamic of China’s winner-take-all culture: the leftovers.

Indeed, riffing on Leta’s research, it is not hard to discern that unmarried women of a certain age are not the only leftovers in China. Last week saw this year’s administration of the gaokao, China’s national university entrance examination. Nine million students sat for the three-day exam this year, but there are seats in China’s universities for no more than three million. While some of those who fail to gain entrance in university will try again next year, we can count on over five million young people facing a future without a university education.

These “leftover students” are a challenge for China’s leaders and an opportunity for international educators. For the Communist Party, it is no small thing to say to six million families a year that the promise of a better life for their children through education is out of reach: every four years that tallies a population equal to the membership of the Party that has often invested its hopes and treasure into the promise of education, only to have it tossed back to them.

For tertiary educators around the world, many of whom are suffering from secular population and economic trends that are pushing enrollments downwards, leftover students represent an massive pool of potential enrollees, many from prosperous families, that could save and sustain many of the world’s less popular colleges and universities, and that could potentially fuel the creation of the world’s largest market for continuing education.

Thanks to Airbnb, apparently, we now no longer have a “hotel industry.” what we have is an evolving “hospitality ecosystem.” Nowhere is this evolution taking place more quickly than in China.

Hotel brands – and their offerings – have been diversifying beyond the traditional rankings of luxury. Local brand Orange and Starwood’s W, and boutiques like Opposite House introduced lifestyle choices to that mix. Expect to see more of that as we see greater consolidation among global brands and increasing competition for domestic tourist dollars.

Two trends to watch in hospitality in China this year: shared and recreational. Shared lodging services like Xiaozhu and Airbnb look set to take off this year for both domestic and outbound travelers as these services begin offering fapiao for business guests and usage moves beyond early adopters.

Recreational lodging, specifically camping, is the second trend to watch. We are seeing the rapid growth of legitimate, licensed campgrounds this year, primarily front-country sites that allow guests to drive up to their unimproved sites and camp. In addition, the growth of the RV industry in China is driving growth in campsites designed for Airstreams and Winnebagos as China’s prosperous are learning the joys of the road.

Finally, we’re witnessing the birth of what can be best called “nostalgia hospitality,” where lodgers are offering boutique lodgings reminiscent of earlier and simpler times in China. This deliberate step backward in time is a sort of bed-and-breakfast with Chinese characteristics, an experience designed for urbanites looking for a true getaway from the complexities of daily life. This is beginning as a part of the shared lodging trend, but will become a sub-phenomenon of its own in the next two to three years.

In response to my article “Standards of Influence,” an old friend and fellow China PR executive raised his hand to offer a gentle objection. While agreeing with the premise, he suggested that if commercial interest disclose their efforts, won’t the public sector put up resistance to their input, as it would be seen as bowing to foreign interests. He further suggested that there might be circumstances when it would be best to allow such processes to take place behind close doors.

This is a fair point, and needs to be addressed.

The combination of popular sentiment, social media watchdogs, and the Party’s desire to short-circuit the cycle of corruption is fostering greater transparency in China around the influence that companies (especially multinationals) try to exert on political decisions. Companies caught trying to change the rules in their favor are finding their operations subject to greater official scrutiny, and officials who appear to have taken part in such discussions are being investigated (or worse) with greater regularity. The potential downsides of the process are starting to outweigh the potential benefits.

This does not mean businesses cannot or should not have a voice in public decision making. Indeed, the wise regulator seeks the open input of a wide range of stakeholders, and businesses owe it to their own stakeholders to stand up and be counted. But when that voice is cloaked, the slope to malfeasance and corruption steepens and is carpeted with bacon grease. Sunlight ensures that the role of commerce in the process serves the public good as well as the private interest.

This means that those of us who operate at the nexus between industry and government in China cannot rely on the time-tested tools of government influence. We must chart a new path that is radically transparent yet equally (if not more) effective. That is a very narrow bridge to walk, and will require a great deal of imagination even in those cases where there is a high congruence between the needs of the nation and the desires of the merchant.

Yet it is critical for us to do so – and not only in China. Around the world there is a growing distaste for (and pushback against) the role that commercial interests play in the formulation of policy. Indeed, China has a deep ideological bias against such interactions. To continue to act as if these sentiments are irrelevant is aught more than denial.

Certainly, there will always be situations where it is better for all – including the public at large – for government discussions with industry to take place behind closed doors. But we should take for granted that in most cases, secrecy does not serve the public, and companies should thus shy from such approaches. If the mounting social and environmental costs of China’s development offer proof of nothing else, it is for the virtue of public scrutiny.

For a company to have real influence in policy in the future, it must first carry the burden of proof that the policies it is advocating are in the service of the public interest. Public relations people should encourage this: not only does this eliminate for companies the risk of later disclosure and the implication of impropriety, it also serves as prima facie proof of good corporate citizenship.

One of the early chapters in my book Public Relations in China focuses on the importance of the government as a stakeholder, and the means by which a non-Chinese firm could make its influence felt in the policy-making process.

In a time when the collusion between moneyed interests and government power has become a challenge in countries around the world, we have to ask, “is there any circumstance in which it is right for a commercial interest to influence policy and regulation?”

My answer is a qualified “yes.” There is no shortage of companies that have proven themselves to be bad actors, wielding a degree of influence far out of proportion to that wielded by other stakeholders, and too often acting in ways that undermine the popular best interest.

At the same time, there are occasions when it is proper for a company to make its point of view known to those proposing regulation, and, indeed, there are circumstances in which a company’s decision to withhold its expertise from the regulatory process represents an abandonment of the firm’s civic duty.

What we need is a standard, a framework within which companies can offer their input in the regulatory process without drowning the popular interest. In an effort to incite a discussion on the topic, I’ll suggest the first six criteria.

For those questions of regulation where a commercial entity has, by virtue of its collective experience or expertise a clearer understanding of a problem than a legislature or executive agency, and the commercial entity has nothing to gain or lose from the resolution of the question, that entity is obliged to offer its information and analysis to influence policy for the greater good.

For those questions of regulation where a commercial entity has, by virtue of its collective experience or expertise a clearer understanding of a problem than a legislature or executive agency, and the commercial entity stands to gain or lose from the resolution of the question, that entity may to offer its information and analysis to influence policy provided that it is open about its interests.

At no time should a commercial entity use its influence to mute or silence other voices, even those in opposition.

At all times the information provided to the government agency must be factual and presented in as clear a manner as possible.

At no time may any commercial entity provide direct or indirect payments to any government official or agency that would serve to influence the resolution of a regulatory question.

All efforts should be publicly disclosed in real time.

Arguably, China’s central government has never been as open to outside (and particularly foreign) influence as have those of the West. Looking at the lobbying-industrial complex that has turned entire neighborhoods of the US capital into ghettos of influence peddling, that is not entirely a bad thing. But the nation needs legitimate pathways to allow an appropriate degree of input by all stakeholders, and foreign companies are no exception. Those pathways should never be closed to companies that adhere to a clear and publicly-acceptable set of standards.

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On Monday Advertising Agepublished my editorial calling for an end to the common practice of paying journalists in China for coverage. You can read the editorial here.

Early reactions are mostly supportive, but there are a number of people who believe that the problem will never be solved. I respectfully disagree. Historically the media in every society have gone through a corrupt phase. Current journalistic practice and standards in the developed world did not suddenly appear ex nihilo: nearly all were created to address an extant practice rather than to anticipate one that might arise.

Viewed against the canvas of history, China’s media are relatively young, and the industry has experienced profound disruptions in the past 70 years. There has been too little time for standards and high-minded practices to develop, and we are probably a generation away from seeing Chinese journalism rise above the shackles of propaganda, yellow journalism, and corruption.

But rise they will, and the sooner we discard the notion that there is no hope for these practices to end, the sooner the problem gets fixed.

My first trip to Chongqing summarily destroyed all of my preconceptions of the central Chinese river terminus.

Instead of an immense but slightly provincial city, I came away after three days with the impression that Chongqing is about as provincial as Hong Kong, and is in many ways a lot more livable than its coastal cousin.

People were fashionable and stylish, at least as much as Beijing. The streets along the river were lined with remarkable restaurants and shopping districts that made Shanghai’s Xintiandi look both quiet and unsophisticated by comparison. The Pedestrian Street between Minzu Road and the Liberation Monument bisected the central business district with a sophistication that rivals Nanjing Road and Wangfujing. And the people have that warmth that seems to come so readily to the people of Sichuan.

I berate myself now for delaying my visit for so long. There really is more to Chongqing than a foggy, overgrown river port, and I suspect that I will be going back again soon.

As I hurtle through 2,800kms of Chinese countryside, a question occurs to me about China’s massive urbanization. The shift is unprecedented, and for that reason alone begs for close examination.

The truth is, we are not examining the scale of urbanization as closely as perhaps we should. Is China urbanizing as quickly as statistics suggest? Or are we – at least in part – witnessing some statistical sleight of hand?

The thought that provoked me on this trip was the villages. Admittedly, my survey was back-of-napkin and limited to those villages alongside the high speed rail lines, but there seemed to be more building, more development, and little blight. That made me wonder. Are people really leaving their villages and heading to the Big City, or are they staying put, and statisticians taking villages and towns previously designated as “rural” or other non-urban areas and predesignating them as “urban?”

There is more to this question than statistical nit-picking. If many people are urbanizing in place, this means that China faces a very different set of challenges in addressing urbanization, including rethinking the infrastructure that needs to be built and probing whether this means that more of the country’s shrinking stock of arable land is in jeopardy.

For marketers, it would mean that a growing percentage of potential customers are physically beyond the reach of their current advertising, retail promotion, and distribution infrastructure.

Either way, it is time we tarted probing China’s urbanization statistics rather than take them as gospel.

Persuasion trumps coercion. Even in China. The government has a monopoly on force, but it does not retain that monopoly by employing it without consideration of public opinion.

The days of high-handed government action are over, and this makes the government’s task more complex – and delicate – than ever. Power my grow from the barrel of a gun, but the nation’s leadership cannot ignore that it remains rooted in the people.

Urbanizing in place – concept – the idea that China’s urbanization is not being driven entirely by migration from the countryside to the cities, but that large areas that Beijing’s statisticians might once have considered “rural” are now considered “urban.”

In-place urbanization could occur in one of three scenarios.

The physical area of a municipality has been expanded to include what was once surrounding countryside.

In the second scenario, a village that was once considered part of the countryside has now grown into a town that a demographer or statistician would now classify as urban.

In the third scenario, a group of villages in a given area are considered to be conglomerated as a single administrative entity and reclassified as a single town.

In these cases, China’s urbanization is taking place without migration, and presents a different set of policy, marketing, and personal challenges and opportunities than classical migration-based urbanization.